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CFO Survey


Economic Optimism Falls To 15-Month Low

CFOs Expect Libor Rate to Reach 4.45% in Next 12 Months

Feldstein Top Choice for New Fed Chairman

FLORHAM PARK, N.J. and NEW YORK, September 16, 2005 — Corporate America is taking the increased cost of oil on the chin.

Almost half (46%) of the 315 CFOs surveyed in the third quarter “CFO Outlook Survey,” conducted by Financial Executives International and Baruch College’s Zicklin School of Business when the price of oil was more than $70 a barrel, say their companies are absorbing most or all of the additional energy costs. So far, only 7% of all CFOs surveyed say their companies are passing most of the cost along to customers.

A significant minority of the surveyed respondents, 29%, say they are not directly affected by high oil prices. These companies were predominantly from service businesses, including communications, technology, banking/finance, health care and consulting. Probably hardest hit by rising oil prices are companies in the manufacturing sector, where 60% say they are absorbing the cost, and another 28% are absorbing half and raising prices to cover the other half.

"The corporate cost of higher oil, so far, is being borne predominantly by the companies themselves,” Burton Rothberg, Assistant Professor of Accounting at Baruch College, observed. “As a result, we can expect corporate earnings or capital spending to be affected, at least until prices to customers are increased. Consumers, who are already bearing the brunt of high oil prices at the gas pump and bracing for higher home heating costs, will have more bad news down the road if and when companies decide to pass along more of the costs,” he concluded.

A Snapshot of Current Economic and Corporate Events
In addition to information about oil prices, CFOs participating in this quarter’s survey provided their views on a wide range of topics. Highlights are below, followed by additional detail.

  • CFO economic optimism has reached a 15-month low.
  • Increases in capital and other spending will be moderate.
  • Interest rates are expected to rise to 4.45% in the next year.
  • Ebbers’ sentence was about right and Sullivan’s was too short.
  • Martin Feldstein and Robert Rubin are top choices for Fed Chairman.
  • Changes to improve defined contribution retirement plans are underway.
  • Smaller companies should have more time to comply with Sarbanes-Oxley.

Economic Optimism Drops
The CFO Optimism Index of the U.S. economy, which is now 65.35, has been dropping since June 2004, losing 3.3 points from last quarter. This quarter, only 65% of the CFOs thought the outlook for the economy was positive, down from 72% in the first quarter.

CFOs’ feelings about their own companies’ financial prospects have been holding virtually steady however. The Optimism Index of CFOs’ own companies’ registered 73.43 this quarter, compared to 74.09 in the last quarter. Seventy-three percent were positive, virtually unchanged during 2005.

“The economic data that we’ve seen over the past few months, most notably slowing consumer spending, steadily climbing short-term interest rates, and soaring energy costs, have understandably caused a decline in CFO optimism,” noted Professor Rothberg. “While it’s true that the decline in overall economic optimism is a worrisome yellow flag, CFOs’ view of their businesses is based on their own order books and first-hand knowledge, not what they read about in the media. It may be the more reliable measure of what’s to come.”

Spending and Interest Rates
Anticipated capital spending for the next 12 months rose slightly to 6.0% from 5.1% last quarter, but is significantly less than the average expectations expressed in the last six surveys. Technology spending forecasts for this quarter and last quarter are also lower than the forecasts of the four prior quarters. “Companies appear to be ‘keeping their powder dry’ and waiting to invest until they anticipate more favorable business conditions,” noted Professor Rothberg.

More than half (54%) of the CFOs surveyed expect the three-month Eurodollar interest rate to rise from its current rate of less than 4% to 4.45% in the next 12 months, consistent with the futures market forecast.

Corporate Wrongdoers Should be Punished
CFOs hold similar views about recent verdicts in trials of corporate executives, believing as a group that the punishment for corporate wrongdoers should be severe. Three-quarters of respondents feel that the 25-year sentence of Bernie Ebbers, former CEO of WorldCom convicted of security fraud, was just about right or even too short. Scott Sullivan’s sentence of five years in prison was deemed by 60% as too short. Mr. Sullivan, WorldCom CFO, who pleaded guilty to fraud and conspiracy, was the government’s star witness in the Bernie Ebbers’ trial. Regarding Richard Scrushy, former CEO of Health South, only 4% of the surveyed CFOs believe that his jury was correct in acquitting him on charges of financial fraud.

“These are strong opinions from our members, reflecting their anger at how these executives misused their power. CFOs recognize the costs to shareholders, the economy and corporate reputation caused by these high-profile scandals,” said Colleen Cunningham, FEI President and CEO.

Straw Vote on the New Fed Head
CFOs’ leading favorites for the successor to Alan Greenspan as head of the Federal Reserve Board are Martin Feldstein, Harvard economist and Chief Economic Advisor in the Reagan Administration, who was mentioned by 28% of respondents, and Robert Rubin, a Director of Citigroup and Treasury Secretary in the Clinton Administration, at a close second with 27%.

DC Plan Features Changing
Efforts to improve participation and increase savings in defined contribution (DC) retirement plans are taking hold. At companies with a DC plan, 26% include an auto enrollment feature; within this group 21% have added that feature in the past year. Nearly half (47%) offer lifestyle funds, with 15% of this group adding these choices in the past year, and over a third (35%) offer personalized investment advice, with 14% of this group adding this option in the past year.

United Views on Sarbanes-Oxley
CFOs are nearly united in their views on whether the deadline for smaller companies to comply with Sarbanes-Oxley Section 404 should be extended by one year. Eighty-three percent support a one-year extension or indicate that the deadline should be extended even further.

About the Survey
Full survey results will be available September 20 at For information prior to that, please contact

This quarter, the CFO Outlook Survey, conducted by Financial Executives International and Baruch College’s Zicklin School of Business, interviewed 315 corporate CFOs electronically in late August and early September. CFOs from both public and private companies and from a broad range of industries, revenues and geographic areas, including some off-shore companies, are represented. Survey respondents are members of Financial Executives International.

Revenue-weighted averages are provided for projected changes in capital and technology spending. Employee-weighted averages are used for projected changes in health care costs.

FEI has been conducting surveys gauging the country’s economic outlook from the perspective of corporate CFOs for the past eight years.

Financial Executives International (FEI) is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers, and controllers. FEI enhances member professional development through peer networking, career planning services, conferences, publications, and special reports and research. Members participate in the activities of 86 chapters, 75 of which are in the United States and 11 in Canada. For more information about FEI, visit

Baruch College, founded in 1847, is a senior college of the City University of New York. The Zicklin School of Business at Baruch College is the largest collegiate school of business in the nation, producing graduates who assume leadership positions in all areas of American business as well as conduct important academic research. Baruch has one of the largest accounting programs in the country whose graduates become practicing CPAs.



Andrew Healy
Chris Allen

Burton Rothberg
Baruch College
Zicklin School of Business